Expansion in Australian companies is being scaled back in the face of Europe’s debt crisis, with the miners, the engine of the nation’s boom, reducing planned hiring because of falling commodity prices.

In a sign that the global turmoil is affecting company decision-making in Australia, NAB’s gauge of business confidence fell in May to minus 2 from 4. Business conditions slid from zero to minus 4, the worst reading in three years.

The survey implied gross domestic product growth would slow to around 2 per cent, from the first quarter’s surprise 4.3 per cent surge.

The report suggests weeks of negative headlines from Europe are overshadowing the Reserve Bank of Australia’s 0.5 percentage point interest rate cut in May.

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The survey was conducted at the end of May, after BHP Billiton chief executive
Marius Kloppers
warned that commodity prices were set to fall as demand growth slows, forcing the company to scrutinise investment decisions more closely.

Mr Oster said overall the labour market was going sideways.

“There’s a big structural change going on. The biggest employer and the one doing everything is health, and miners have employed as many people as manufacturers have fired in the last three years," he said. “But I get the sense the weak bits have accelerated the pace of shedding."

The release of the NAB survey came after United States markets reacted poorly to a €100 billion ($126 billion) loan package for Spain’s beleaguered banks over the weekend.

Spanish government bond yields rose close to euro-era highs on Tuesday as relief over a bailout for the country’s banks quickly turned to concern over how easily it will be able to access debt markets in the longer term. Italian bond yields also rose before an auction on Thursday, when the Treasury may have to pay dearly to sell debt, with Sunday’s make-or-break Greek election adding to investor unease.

Independent auditors are expected to announce by June 21 how much of the €100 billion loan package is needed to prop up Spain’s banks.

Euro-zone finance ministers agreed to make the money available as the region works to douse its latest flash point before the Greek election, which is shaping as a referendum on the euro.

There are fears an anti-bailout coalition will win the election, potentially triggering Greece’s withdrawal from the euro zone – with bad results for the Greek economy and Europe.

A top official with Germany’s central bank said on Tuesday night Greece must stick with the spending cuts and economic reforms demanded as part of its bailout loans.

Andreas Dombret, an executive board member at the Bundesbank, said that Greece needs to stick with its program “no ifs, ands or buts".

France was backing more fiscal integration in the euro zone but believed the first priority should be solving the crisis, said Europe Minister Bernard Cazeneuve.

After talks in Paris with his German counterpart Michael Linke, Mr Cazeneuve said euro-zone leaders urgently needed to compromise on steps to pull the region out of a debt-induced crisis and find concrete measures to boost economic growth.

Less than one in 20 businesses expected the budget would benefit them, the report found.

Forty-seven per cent said they would be negatively impacted, and 45 per cent said it would have a neutral effect on their operations.

The deterioration in economic activity was broad-based across industries and all mainland states except Western Australia and South Australia, which were the only states to report positive activity in the month, the NAB said.

The survey implied gross domestic product growth would slow to around 2 per cent, from the first quarter’s surprise 4.3 per cent surge.

The next important data is Wednesday’s Westpac consumer sentiment survey for June, which will cover the period after the most recent Reserve Bank rate cut as well as news that the economy surged in the first quarter and jobs growth strengthened.